A mortgage payment holiday lets you pause or reduce your mortgage payments temporarily. It can be a lifeline during financial difficulty, but it comes with costs you need to understand.
What Is a Mortgage Payment Holiday?
A payment holiday is a temporary break from your mortgage payments, agreed with your lender. During the holiday:
- You make no payments (or reduced payments)
- Interest continues to accrue on your outstanding balance
- Your mortgage balance increases
- After the holiday, payments resume — usually higher or over a longer term
When Can You Get a Payment Holiday?
| Situation | Likely Approval | Notes |
|---|---|---|
| Job loss / redundancy | High | Contact lender before missing payments |
| Illness or injury | High | May need medical evidence |
| Maternity / paternity leave | Moderate-High | Some lenders specifically allow this |
| Temporary income reduction | Moderate | Evidence of the reduction needed |
| General financial difficulty | Moderate | Lender will assess your situation |
| Lifestyle choice (holiday, etc.) | Low | Not designed for this purpose |
Eligibility Requirements
Most lenders require:
- Payment history — at least 6-12 months of consistent payments on this mortgage
- No arrears — you should be up to date when you apply
- Proactive contact — you ask before missing payments, not after
- Evidence — some lenders require proof of the financial difficulty
How Much Does It Cost?
Interest doesn’t stop during a payment holiday. The unpaid interest is added to your mortgage balance (capitalised), meaning you pay interest on interest.
3-Month Payment Holiday
| Original Mortgage | Rate | Monthly Payment | Interest Accrued (3 months) | New Balance |
|---|---|---|---|---|
| £150,000 | 4.5% | £760 | £1,688 | £151,688 |
| £200,000 | 4.5% | £1,013 | £2,250 | £202,250 |
| £250,000 | 4.5% | £1,267 | £2,813 | £252,813 |
| £300,000 | 4.5% | £1,520 | £3,375 | £303,375 |
6-Month Payment Holiday
| Original Mortgage | Rate | Interest Accrued (6 months) | New Balance |
|---|---|---|---|
| £150,000 | 4.5% | £3,413 | £153,413 |
| £200,000 | 4.5% | £4,551 | £204,551 |
| £250,000 | 4.5% | £5,688 | £255,688 |
| £300,000 | 4.5% | £6,826 | £306,826 |
Impact on Future Payments
After the holiday, the extra balance is spread over the remaining term:
| Scenario (£250k mortgage, 25yr remaining) | Before Holiday | After 3-Month Holiday | Increase |
|---|---|---|---|
| Monthly payment | £1,267 | £1,289 | +£22 |
| Total extra interest over remaining term | — | ~£6,600 |
Or your lender may extend the term by approximately 3-4 months instead of increasing payments.
Credit Score Impact
| Type of Holiday | Credit Score Impact |
|---|---|
| COVID-19 payment holiday (2020-2021) | Protected — no negative mark |
| Lender-agreed concession | Usually not recorded as missed payment |
| Missed payments without agreement | Serious negative impact (stays 6 years) |
| Formal arrangement (debt management) | Recorded — visible to other lenders |
What Future Lenders See
Even if your credit score isn’t directly damaged, a payment holiday may affect future borrowing:
- Lenders may ask about payment holidays on mortgage applications
- Your mortgage balance will be higher than expected for the loan age
- Some lenders’ affordability models account for previous financial difficulty
How to Apply for a Payment Holiday
- Contact your lender immediately — don’t wait until you miss a payment
- Explain your situation — be clear about why you need it and how long
- Provide evidence if requested — redundancy letter, medical note, etc.
- Ask about alternatives — reduced payments or interest-only may be better
- Get the agreement in writing — confirm the terms, duration, and impact
- Set a calendar reminder for when payments resume
- Resume payments on time — missing the restart date can cause problems
Alternatives to a Payment Holiday
| Alternative | How It Works | Best For |
|---|---|---|
| Reduced payments | Pay less than normal for a period | Temporary income drop (not total loss) |
| Interest-only period | Pay only interest, no capital | Moderate reduction needed |
| Term extension | Extend mortgage to 30-35 years | Permanently reduce monthly payments |
| Overpayment reserve | If you’ve previously overpaid, your lender may let you drawdown | Those with existing overpayment buffer |
| Income protection insurance | Replaces income during illness/redundancy | Covered by existing policy |
When a Payment Holiday Is a Good Idea
- You’re between jobs and expect to be re-employed within 3-6 months
- You’re on maternity/paternity leave with a clear return date
- You have a temporary health issue affecting your ability to work
- You’ve had a sudden unexpected expense and need breathing room
When It’s Not the Answer
- You’re in long-term financial difficulty — a payment holiday only delays the problem
- You want to free up cash for non-essential spending
- You haven’t explored reducing other expenses first
- You’d be better served by a debt advice service (StepChange, Citizens Advice)
If You’re Struggling with Mortgage Payments
If a payment holiday isn’t enough, get free help:
| Organisation | What They Do | Contact |
|---|---|---|
| StepChange | Free debt advice | stepchange.org |
| Citizens Advice | Benefits check, debt advice | citizensadvice.org.uk |
| National Debtline | Free telephone debt advice | nationaldebtline.org |
| Your lender | Tailored forbearance options | Your mortgage lender’s number |
| Shelter | If you risk losing your home | shelter.org.uk |
Lenders are required by FCA rules to treat customers fairly and explore options before repossession. Contact them early — it’s always better than ignoring the problem.